Which of the following would not appear as adjustments to net income?

The statement of financial position is NOT associated with the income statement. It is associated with the balance sheet.

Statement Of Operations

This name is used instead of income statement.

  • 2.

    The income statement heading will specify which of the following?

    A POINT In Time

    A balance sheet's heading is a point in time.

    A PERIOD Of Time

    An income statement covers the period of time shown in its heading.

  • 3.

    Amounts earned by a company in its main operating activities are known as __________.

    Revenues

    This is the correct answer.

    Gains

    Gains pertain to items outside of the main operations.

  • 4.

    A company disposes of equipment that it no longer uses in its business. The amount received by the company is more than the amount the asset is carried at in the accounting records. The company will report a(n) __________.

    Expense

    Expenses are associated with the main operations of a company... not with the disposal of long-term assets.

    Gain

    Because the sale of equipment is outside of the main business activity and the amount received was greater than the amount at which the asset was carried in the company books, it is reported as a gain. The amount of the gain is the amount by which the proceeds exceeds the carrying amount.

    Loss

    To have a loss the proceeds would have to be less than the carrying amount.

    Revenue

    Revenues involve the main operations of the company... not with the disposal of long-term assets.

  • 5.

    On December 1, a company borrowed $100,000 at 12% per year. The interest will be paid quarterly, with the first payment due on March 1. What should the company report on its income statement for December?

    Nothing

    The company is incurring (having) interest expense every day that the loan is outstanding. The December income statement must report one month's interest expense.

    Interest Expense Of $1,000

    The income statement must report the interest incurred regardless of the date the interest is paid. $100,000 X .12 X 1/12 = $1,000.

  • 6.

    Is a retailer's Interest Expense an operating expense or a non-operating expense?

    Operating Expense

    Interest is associated with the finance function, not the main activity of buying/producing and selling.

    Non-operating Expense

    Interest is associated with the finance function, which is not the main operations of the company.

  • 7.

    The income statement line gross profit will appear on which income statement format?

    Single-step

    There is no subtotal in the single-step income statement.

    Multiple-step

    It will appear as the result of subtracting the cost of goods sold from net sales.

  • 8.

    Which income statement format segregates the operating revenues and expenses from the non-operating revenues and expenses?

    Single-step

    The single-step statement shows operating and non-operating revenues in one group, and it shows operating and non-operating expenses as another group.

    Multiple-step

    Multiple-step shows operating revenues and expenses separate from the non-operating revenues and expenses.

  • 9.

    Interest earned on investments would appear in which section of a retailer's multiple-step income statement?

    Non-operating

    Interest revenue is outside of a company's main operations.

    Operating

    Interest earned is a non-operating revenue.

    Would Not Appear

    Interest earned would appear in the non-operating section.

  • 10.

    Under the accrual basis of accounting, revenues are recognized in the accounting period in which __________.

    Cash Is Received

    Under the accrual basis of accounting, revenues are recognized when the revenues are earned, not when the cash is received.

    Revenues Are Earned

    Under the accrual basis of accounting, revenues are recognized when earned.

  • 11.

    Net Sales minus the Cost of Goods Sold is __________.

    Income From Operations

    Operating Income is Gross Profit minus Operating Expenses.

  • 12.

    The combination of net income + other comprehensive income is known as __________ income.

  • 13.

    Which basis of accounting best measures profitability during a short time interval?

    Cash Basis

    When cash is collected does not determine when sales and service revenues have been earned. When payments are made does not determine when expenses are incurred.

  • 14.

    Gross Profit minus Operating Expenses is best defined as __________.

    Net Income

    This is not the best answer.

    This could be true if there were no non-operating revenues and expenses.

    Net Sales

    Net Sales is Gross Sales minus Sales Discounts and Sales Returns and Allowances.

  • 15.

    What is defined as sales minus all variable expenses?

  • 16.

    Are the draws of a sole proprietor reported as an expense on the company's income statement?

  • 17.

    A corporation's net income will cause an increase to which of the following?

    Accumulated Other Comprehensive Income

  • 18.

    If a company's stock is publicly traded, is it a requirement that the earnings per share appear on the income statement?

    Yes

    The earnings per share must appear on the income statement if a corporation's stock is publicly traded.

    No

    The earnings per share must appear on the income statement if a corporation's stock is publicly traded.

  • 19.

    Are the notes to the financial statements considered to be an integral part of the financial statements?

    Which of the following is not added to net income using indirect method?

    Interest Expense(s) are NOT added back to net income when using the indirect method to prepare a statement of cash flows.

    Which of the following items would be subtracted from net income?

    Answer and Explanation: The correct answer is option (a). A decrease in utilities payable would be subtracted from net income when determining cash flows from operating activities by the indirect method.

    Which of the following would be added to net income using the indirect method?

    Correct answer: Option c) Depreciation expense. Explanation: Depreciation expense is added to the net income, while the increase in current assets is reduced and the decrease in current liabilities is also reduced.

    What must be added to net income to approximate cash flow?

    How to Calculate Free Cash Flow. Add your net income and depreciation, then subtract your capital expenditure and change in working capital. Free Cash Flow = Net income + Depreciation/Amortization – Change in Working Capital – Capital Expenditure.

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